The chief accountant of Maguire Ltd. has extracted the following trial balance as at 31 December 2020:

Ordinary share capital: 1 shares 150,000 Share premium 50,000 Buildings, cost as at 1/1/20 424,000 Fixtures and fittings, cost as at 1/1/20 400,000 Buildings, accumulated depreciation as at 1/1/20 42,400 Fixtures and fittings, accumulated depreciation as at 1/1/20 180,000 Trade receivables 364,000 Trade payables 373,200 Bank 16,000 Inventory as at 1/1/20 390,000 Revenue 1,840,000 Bad debt expense 10,000 Debenture interest 6,000 Administration general expenses 232,400 Administration salaries 135,000 Distribution expenses 123,200 Purchases 1,025,000 8% Debentures (redeemable 2030) 200,000 Retained earnings as at 1/1/20 270,000 Allowance for doubtful debts 20,000 3,125,600 3,125,600

Additional information: (1) Inventory at 31 December 2020 is valued at 421,000. (2) The figure for administration general expenses includes a payment of 10,000 for rates which was paid in October 2020 covering the period 1 October 2020 to 31 March 2021. (3) The credit controller has advised that a customer has gone bankrupt and his debt of 3,000 should be written off. The allowance for doubtful debts is to be adjusted to 5% of trade receivables.

(4) Taxation due on profits for the year is estimated to be 25,000. Question one continues on the next page............

3 ......Question one continued

(5) The company depreciates buildings using the straight line method of depreciation at a rate of 2% per annum and fixtures and fittings using the reducing balance method at a rate of 20% per annum. It is company policy that a full years worth of depreciation is charged in the year of acquisition and none in the year of disposal. (6) In December 2020, fixtures and fittings which had cost 6,000 when they were purchased in May 2017 were sold for 5,000. Replacement fixtures and fittings were purchased on the same day for 10,000. All monies relating to these transactions remain outstanding at the year end. No entries were made in the accounts regarding the disposal or purchase of fixtures and fittings. (7) Staff bonuses totalling 80,000, audit fees of 20,000 and outstanding debenture interest should be accounted for at the year end.

Required: (a) On behalf of the directors of Maguire Ltd, prepare a Statement of Profit or Loss and a Statement of Changes in Equity for the year ended 31st December 2020 and a Statement of Financial Position as at the 31st December 2020.

(44 marks) (b) Explain the reason why non-current assets are depreciated and outline the main differences between the straight-line and reducing balance methods of depreciation using examples from Maguire Ltd.